10 Sanctions Clauses Every International Business Should Consider Before Signing a Contract

International contracts are increasingly exposed to sanctions, export controls, banking restrictions and rapidly changing regulatory requirements.

For companies engaged in cross-border trade, the question is no longer simply whether a transaction is commercially attractive. It is also whether the transaction can still be performed if the regulatory environment changes.

A carefully drafted sanctions clause can help businesses identify, allocate and manage these risks before they become a dispute.

Below are ten contractual provisions that international businesses should consider.

1. Compliance with Applicable Sanctions

The starting point is a general obligation for each party to comply with all sanctions and export-control laws applicable to the transaction.

However, a good clause should not simply say:

"The parties shall comply with applicable sanctions."

It should identify the relevant legal framework where appropriate and make clear that compliance obligations continue throughout the contractual relationship.

This is particularly important for long-term contracts, where the applicable sanctions regime may change after the agreement has been signed.

2. Sanctions Status and Representations

A party may require its counterparty to represent that neither it nor, where relevant, its owners or controlled entities is subject to applicable sanctions.

The clause can also require the counterparty to notify the other party if its sanctions status changes.

This is important because sanctions screening performed on the signing date may not remain accurate six months later.

For higher-risk transactions, the contract may also require periodic certifications or updated information concerning ownership and control.

3. Beneficial Ownership and Control

Sanctions risk is not always visible from the name of the contracting company.

The actual risk may arise from:

• a sanctioned beneficial owner;

• a sanctioned parent company;

• a controlled subsidiary;

• a sanctioned director or controlling person; or

• a change in ownership during the life of the contract.

A sanctions clause can therefore require the counterparty to disclose relevant ownership and control information and to notify the other party of material changes.

4. End-User and End-Use Restrictions

For transactions involving goods, technology or sensitive services, the contract should address who will ultimately receive and use the goods.

This may include:

• identification of the end user;

• restrictions on resale;

• restrictions on re-export;

• restrictions on use in prohibited destinations;

• information and certification requirements; and

• obligations to prevent diversion through third parties.

For certain transactions involving Russia-related restrictions, EU law expressly requires contractual controls concerning re-export to Russia, subject to applicable exceptions. The European Commission has published suggested wording and emphasizes the importance of effective contractual remedies.

The exact clause, however, should be adapted to the transaction rather than copied mechanically from a template.

5. No Circumvention Clause

A sophisticated sanctions clause should address not only direct violations but also circumvention.

For example, a transaction should not be structured so that goods are formally sold to one jurisdiction while the parties know or reasonably suspect that they will ultimately be diverted to a prohibited destination.

The clause may therefore prohibit the parties from taking actions designed to circumvent applicable sanctions or export controls.

This is particularly relevant where multiple intermediaries, distributors or jurisdictions are involved.

6. Sanctions Due Diligence and Information Rights

In higher-risk transactions, one party may need the contractual right to request information necessary to assess sanctions compliance.

This could include information concerning:

• ownership;

• destination;

• end user;

• shipping arrangements;

• intermediaries;

• customs documentation;

• licences or authorisations; and

• relevant payment arrangements.

The European Commission's sanctions due-diligence guidance emphasizes risk assessment of business partners, transactions and goods, as well as identifying indicators of possible circumvention.

A contractual information right can therefore turn due diligence from a one-time exercise into an ongoing contractual mechanism.

7. Suspension of Performance

What happens if a sanctions risk emerges but the transaction is not yet clearly prohibited?

This is where a suspension clause becomes important.

The contract may allow a party to temporarily suspend its obligations where continued performance could expose it to a sanctions violation or significant regulatory risk.

The clause should ideally address:

• when suspension may occur;

• whether notice is required;

• what happens to goods already in transit;

• how payments are treated;

• who bears additional costs; and

• when the suspension ends.

Without such provisions, a company may find itself choosing between two risks: performing the contract and potentially violating sanctions, or refusing performance and potentially breaching the contract.

8. Alternative Performance and Payment

International sanctions can disrupt a transaction even where the underlying sale is not itself prohibited.

A bank may refuse a payment.

A carrier may decline the shipment.

An insurer may refuse coverage.

A particular currency may become impractical.

Should the parties be required to find an alternative?

This should not be left entirely to interpretation.

The contract can specify whether the parties must attempt lawful alternatives, such as:

• another payment channel;

• another currency;

• another bank;

• another carrier;

• another delivery route; or

• another lawful structure for performance.

Importantly, however, an alternative must actually be lawful and contractually acceptable. A party should not be required to adopt an alternative merely because it is technically possible.

9. Termination Rights

Suspension cannot continue indefinitely.

A sanctions clause should therefore address when a party may terminate the contract.

Possible triggers include:

• a party becoming subject to relevant sanctions;

• performance becoming unlawful;

• a required licence being denied or withdrawn;

• continued sanctions-related suspension exceeding a specified period;

• material breach of sanctions obligations; or

• a material risk of sanctions circumvention.

The consequences of termination should also be clear.

For example:

• Are advance payments refunded?

• Who bears storage costs?

• What happens to goods already manufactured?

• Can either party claim damages?

• What happens to confidential information?

• Do indemnities and dispute-resolution provisions survive?

10. Indemnification and Remedies

Finally, the contract should address the consequences of a sanctions breach.

Depending on the applicable law and transaction, this may include:

• indemnification;

• recovery of losses;

• contractual penalties where legally permissible;

• suspension of performance;

• termination;

• recovery of investigation costs; or

• other contractual remedies.

Remedies should be drafted carefully. A clause that attempts to impose an excessive or unenforceable penalty may create additional legal problems rather than solving the original one.

A Sanctions Clause Cannot Replace Due Diligence

One of the most important points for businesses is that contractual protection is not a substitute for compliance.

A company cannot simply write a broad sanctions clause into a contract and assume that its regulatory obligations have been transferred to the counterparty.

For example, an Incoterm such as EXW does not by itself remove an EU operator's obligations under EU sanctions law.

Similarly, a contractual representation from a counterparty does not necessarily protect a company that ignores obvious red flags.

Contract drafting and sanctions due diligence should work together.

The Right Clause Depends on the Transaction

There is no universal "sanctions clause" that is appropriate for every international contract.

A simple purchase agreement may require a relatively limited sanctions provision.

A long-term supply agreement involving multiple jurisdictions may require much more extensive protections.

A transaction involving sensitive goods, dual-use technology, financial services, shipping, energy or sanctioned jurisdictions may require an entirely different contractual structure.

The governing law also matters.

A clause that appears straightforward under one legal system may have a different effect under another.

Final Takeaway

Sanctions risk should be addressed before an international contract is signed—not after a bank refuses payment, a shipment is stopped, or a counterparty becomes sanctioned.

A well-designed sanctions framework should answer four basic questions:

Who must comply?

What must they do?

What happens when a sanctions risk arises?

What happens if the risk becomes a breach?

For international businesses, these questions are not merely compliance issues. They are fundamental questions of contractual risk allocation.

At B&P Legal Group, we assist businesses in reviewing and structuring cross-border commercial arrangements, including contractual mechanisms designed to address sanctions, regulatory and multi-jurisdictional risks.

The objective is simple: identify the risk before it becomes a dispute.